Asia Update: China Markets Reopen After A Long Holiday
Steady as she goes for the yuan fix as Pboc continues to veer the Yuan in a stable tangent ahead of critical trade talks. But interestingly of note Yuan and currency manipulation related trade war headlines have been conspicuous by their absence. Suggesting that any currency-related headlines could trigger an outsized response as the markets have not fully priced in this risk
But U.S. rates compression will likely be the primary driver for USD weakness in Q4 which poses as a significant downdraft for USD/JPY as Japanese corporate hedging is expected to intensify on a clear breach of 1.5 % on 10 year U.S. bond yields.
Gold traded down to $1586.7 just before China's retail market re-opened following the holidays, but there has been significant gold buying appetite, and so far, its has been a unilateral move higher since then, with XAU/USD going to 1592.5.
Trade war uncertainty is a factor, but we also think retail investors are piggybacking ongoing purchases by the Pboc. Indeed, the Pboc gold buying splurge does offer up a significant backstop. However, we expect the move to be faded as the market continues to pare risk aversion bets ahead of the trade talks.